The process of economic liberalization began in Central America towards the end of the 1980s. In the two decades that have elapsed since then, a considerable degree of market opening has been achieved, while at the same time the Central American economies have started to diversify away from the handful of key products on which they were formerly dependent. However, the export growth and export product diversification has been heavily concentrated in export processing zones and in those industries where there has been extensive foreign direct investment; the benefits of trade expansion have not been felt throughout the economy as a whole, and considerable work still needs to be done to establish new industries and build up existing industries. Most of the goods produced in the export processing zones are exported to the US, making the US a very important trading partner for both the Central American nations and the neighboring Dominican Republic. Under the terms of the Central America – Dominican Republic – United States Free Trade Agreement (CAFTA-DR) signed between the US, the Dominican Republic, Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica, the US market has been almost completely opened up to Central American exports, reflecting the desire on the part of the US to integrate Central America with the North American market. Having expressed their willingness to open up their own domestic markets to US goods, the Central American economies have been adopting new trade policies that emphasize market opening, and have been working to improve their domestic investment environment, in the hope that CAFTA-DR will help Central America to achieve sustained economic growth.
